The pandemic and changing priorities for capital markets

Published by: Jalil Tarif, Secretary General, Union of Arab Securities Authorities Jul 2020

Before joining the Union of Arab Securities Authorities as secretary General, I had the honour to work as the CEO of Amman Stock exchange. During that period I enjoyed working closely with colleagues from stock exchanges around the world. Having the opportunity to work with regulators and stock exchanges, I believe that strong cooperation among financial markets stakeholders contributes to successful capital markets.

Health and economy dilemma

The Covid-19 outbreak has put pressure on governments to act urgently to contain the spread of the pandemic. Accordingly restrictions on travel and movement and full lockdowns were imposed, prioritizing health first and foremost.

However with the continued spread of the virus and lockdown, people and economies have started to suffer. Many major economies have entered recession, while unemployment has reached unprecedented levels.

As lockdowns helped to contain the spread of Covid-19, and faced with the urgent need to deal with the social and economic impact of the crisis, governments started gradually to reopen the economies, despite the fear of a second wave of the virus.

Impact on capital markets 

World markets lost almost one third of their capitalization in March. The decline was unprecedented and worse than the Great Depression and the Financial Crisis.

The Dow Jones Industrial Average lost more than 38% compared with its highest level in late February. Meanwhile the NASDAQ and S&P indexes declined by 33% and 35% respectively. The FTSE 100 fell 37%, while the hit to markets in Europe was more severe, exceeding 40% for the DAX and CAC 40 index.

MENA Region stock exchanges were affected not only by the coronavirus crisis, but also by a dramatic drop in the price of oil. Market capitalizations of the 16 exchanges of the region fell to $2.5 trillion at the end of March, a decline of 22%.

The capitalization of the Saudi Exchange (Tadawul), which accounts for more than 80% of the market capitalization of the region, reached $2 trillion compared with $2.3 trillion at the end of January 2020.

Stimulus packages

Multibillion packages have been introduced in the MENA region, including a $31.9 billion stimulus programme to mitigate the economic effects of the crisis in Saudi Arabia. The United Arab Emirates represent another important example of government support. Abu Dhabi announced 15 initiatives focused on supporting SMEs, while Dubai introduced an AED 1.5 billion package to enhance liquidity. Qatar instigated a $23 billion stimulus package to shield the economy while Egypt announced a financial loan package of $6.3 billion.

Regulators and stock exchanges worked together, along with governments, to overcome the impact of Covid-19. The measures implemented in the MENA region include pricing bands, reduced trading hours and extended deadlines for companies’ general assemblies and disclosure requirements. Many regulators in the region requested that companies disclose the impact of the pandemic on their current and future financial positions.

In conclusion, I believe financial markets, including those from the MENA region, have made very important progress in dealing with the impact of Covid-19. Recent indicators show positive signs for a long-lasting recovery of economies and markets.

Timely information

I also commend the support provided by international institutions like the International Organization of Securities Commissions (IOSCO), the World Federation of Exchanges (WFE), and the Organisation for Economic Cooperation and Development (OECD). They have stressed the importance of having timely, high-quality information about the impact of Covid-19, and also the need to keep markets open, given well-established measures used to address pressure on the financial system such as circuit breakers and pricing bands.

It is clear that life after Covid-19 is not the same as the one we used to lead. Precautionary health measures including social distancing will remain in place until a vaccine and effective medications are introduced.

Capital markets’ priorities have already changed. More focus is given to governance, including greater disclosure and transparency, enhanced technologies and cyber security, as well as strengthened financial markets infrastructure.